Republic of the Philippines

ENERGY REGULATORY COMMISSION

San Miguel Avenue, Pasig City

GUIDELINES TO GOVERN THE SUBMISSION, EVALUATION AND APPROVAL OF

ELECTRIC POWER TRANSMISSION AND DISTRIBUTION CAPITAL PROJECTS

Pursuant to Section 43 of Republic Act No. 9136 otherwise known as the

Electric Power Industry Reform Act of 2001 (EPIRA), Rules 6 and 7 of its
Implementing Rules and Regulations, Section 8 of ERB Resolution No. 95-21, as
amended, and Section 20 (b) of Commonwealth Act No. 146, as amended, the
Energy Regulatory Commission (ERC) hereby adopts and promulgates the
following Guidelines to Govern the Submission, Evaluation and Approval of Electric
Power Transmission and Distribution Capital Projects.

ARTICLE I

GENERAL PROVISIONS

Section 1. Objectives This Guidelines shall have the following

objectives:

1. To provide the transmission company and distribution utilities with a

uniform system for filing applications for the approval of electric power
capital projects;

2. To ensure and accelerate total electrification of the country;

3. To ensure the quality, reliability, security and affordability of supply of

electric power and in compliance with the Philippine Grid Code and the
Philippine Distribution Code ;

4. To protect the public interest as it is affected by the rates and services of

electric utilities and other providers of electric power;

5. To promote a policy of full disclosure of transactions that concern public

interest and;

6. To ensure that the procurement of equipment and materials are

transparent and complies with the Government Procurement Act, R.A.
No. 9184, and accepted industry practices and standards.

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 Section 2. Guiding Principles Article 6.3 of the PGC and Article 6.3 of
the PDC directed the Grid Owner and the Distributors to conduct transmission and
distribution planning studies for the preparation and evaluation of transmission and
distribution system reinforcement projects and for the preparation of the
transmission and distribution development plans. TransCo is mandated to prepare
the Transmission Development Plan (TDP) for its submission to the DOE for
integration with the Power Development Program (PDP) and the Philippine Energy
Plan (PEP). Similarly, Distribution Utilities are mandated to prepare and submit
their annual 5-year Distribution Development Plans to the DOE. Individual
development projects found within the TDP and the DDP shall be reviewed by the
ERC.

Any plan for expansion or improvement of transmission and distribution

facilities shall be reviewed and approved by the ERC to ensure that the contracting
and procurement of the equipment, assets and services have been subjected to
transparent and competitive procurement and purchasing processes to protect
public interest.

Section 3. Scope of Application This Guidelines shall apply to all

electric power Transmission and Distribution Utilities, including but not limited to
the following:

1. National Transmission Corporation (TransCo);

2. Electric cooperatives;
3. Privately-owned distribution utilities;
4. Local government unit owned-and-operated distribution systems;
5. Entities duly authorized to operate within the economic zones; and
6. Other duly authorized entities engaged in the distribution of electricity.

Section 4. Definition of Terms The following words and phrases shall

have the following respective meanings:

a) Department of Energy or DOE shall refer to the government agency

created pursuant to Republic Act No. 7638 whose expanded functions are
provided in the Act;

b) Distribution Code shall refer to a compilation of rules and regulations

governing electric utilities in the operation and maintenance of their
distribution systems which includes among others, the standards for service
and performance, and defines and establishes the relationship of the
distribution systems with the facilities or installations of the parties
connected thereto;

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c) Distribution Development Plan shall refer to the five-year
development plan submitted by the distribution utilities to the DOE not later
than the fifteenth (15th) of March of every year, pursuant to Section 23 of
R.A. No. 9136 and Rule 7, Section 4(p) of its IRR. In the case of electric
cooperatives, such plans shall be submitted through the NEA for review and
consolidation, in preparation of the National Electric Cooperatives
Distribution Development Plan.

d) Distribution Management Committee (DMC) shall refer to the

committee established by the ERC to monitor the implementation of the
Distribution Code and to perform other functions mentioned in Section 2.2.1
of the Distribution Code.

e) Distribution System shall refer to the system of wires and associated

facilities belonging to a franchised distribution utility, extending between the
delivery points on the transmission, subtransmission system, or generating
plant connection and the point of connection to the premises of the end-
user.

f) Distribution Utility shall refer to any electric cooperative, private

corporation, government-owned utility, or existing local government unit that
has an exclusive franchise to operate a distribution system.

g) Economic Zone (EZ) shall refer to the selected areas which are being
developed into agro-industrial, industrial, tourist, recreational, commercial,
banking, investment and financial centers. An EZ may refer to any of the
following: Industrial Estates, Export Processing Zones, Free Trade Zones,
Information Technology Parks and Tourist/Recreational Centers, such as
but not limited to, those managed, administered, or operated by the Bases
Conversion Development Authority (BCDA), Cagayan Economic Zone
Authority (CEZA), Clark Development Corporation (CDC), Subic Energy
Zone (SEZ), Philippine Economic Zone Authority (PEZA), Phividec Industrial
Authority (PIA), and Zamboanga City Economic Zone Authority (ZCEZA).

h) Electric Cooperative shall refer to a distribution utility organized

pursuant to Presidential Decree No. 269, as amended or as otherwise
provided in Republic Act No. 9136.

i) Electric Utility shall refer to all electric power Transmission and

Distribution Utilities as stated in Section 3 of Article 1 of this Guidelines.

j) Grid shall refer to the high-voltage backbone system of interconnected

transmission lines, substations, and related facilities.

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k) Grid Code shall have the same meaning as Philippine Grid Code.

l) Grid Management Committee (GMC) shall refer to the committee

established by the ERC to monitor the implementation of the Grid Code and
to perform other functions mentioned in Section 2.2.1 of the Grid Code.

m) Grid Owner shall refer to the party that owns the high-voltage
backbone transmission system and is responsible for maintaining adequate
grid capacity in accordance with the provisions of the Grid Code.

n) National Transmission Corporation (TransCo) shall refer to the

corporation organized pursuant to Republic Act 9136 to acquire all the
transmission assets of the National Power Corporation. When used in this
Guidelines, it shall also refer to the Buyer or Concessionaire or assignee of
Transco.

o) Person shall refer to a natural or juridical person, as the case may be.

p) Philippine Distribution Code (PDC) shall refer to the set of basic

rules, requirements, procedures, and standards to ensure the safe, reliable,
secured and efficient operation, maintenance, and development of the
distribution systems in the Philippines. It also defines and establishes the
technical aspects of the working relationship of the Distributors and all users
of the distribution system.

q) Philippine Energy Plan (PEP) shall refer to the overall energy

program formulated and updated yearly by the DOE and submitted to
Congress pursuant to Republic Act No. 7638.

r) Philippine Grid Code (PGC) shall refer to the set of basic rules,
requirements, procedures, and standards that will ensure the safe, reliable,
secured and efficient operation, maintenance, and development of the high-
voltage backbone transmission system in the Philippines. It identifies and
recognizes the responsibilities and obligations of the Grid Owner, System
Operator, and the Market Operator.

s) Power Development Program (PDP) shall refer to the indicative plan

for managing electricity demand through energy-efficient programs and for
the upgrading, expansion, rehabilitation, repair, and maintenance of power
generation and transmission facilities, formulated and updated yearly by the
DOE in coordination with the generation, transmission, and distribution utility
companies.

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 t) Transmission Development Plan (TDP) shall refer to the program for
managing the transmission system through efficient planning for its
expansion, upgrading, rehabilitation, repair, and maintenance, to be
formulated by DOE and implemented by TRANSCO or its buyer or
concessionaire.

u) Transmission System shall have the same meaning as Grid.

Section 5. Classification of Capital Projects Capital Projects are

classified into three (3) categories:

a) Major Capital Projects are projects that are larger in scale in terms of
the nature and scope of work and involve several inter-related activities,
including the construction, upgrading, extension or installation of new
and/or of existing major transmission / sub-transmission facilities,
distribution systems and substations; systems control, protection,
metering and communication facilities, that are necessary to improve the
reliability, adequacy and efficiency of the electric transmission and
distribution system, as the case maybe.

All Major Capital Projects to be implemented in a given year shall be

consistent with the TDP and DDP and shall have been submitted for the
ERCs approval not later than the 31st day of August of the previous
year.

Application for approval of Major Capital Projects shall be acted upon by

the ERC within 120 calendar days; otherwise, it is deemed that the
application shall have been approved.

b) Minor Capital Projects are projects and activities needed in providing

and maintaining service to customers including but not limited to
replacement of rotten poles, repair of pole-line hardware and
attachments, utility vegetation control and management, execution of
minor projects and activities brought about by actions of government and
private entities, and unforeseen problems and device failures in the
electric distribution system.

Minor Capital Projects shall not require the approval of the ERC but shall
be submitted for monitoring purposes not later than the 30th day of
September of the current year together with the following information: (1)
Project Description; (2) Justification for the Project; (3) Detailed Cost
Estimates; and (4) Proposed Project Schedule.

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 c) Emergency Capital Projects are projects that require immediate
action in order to maintain safe, reliable, secured and efficient operation
of the power system.

The Electric Utility shall inform the ERC in writing within 30 calendar
days upon implementation of Major Emergency Capital Projects and
shall include the (a) Project Costs and (b) Project Schedule.

The Electric Utility shall file an application for approval within 30 calendar
days after completion of Major Emergency Capital Projects.

ARTICLE II

APPLICATIONS AND REQUIREMENTS

Section 1. Application for Major Capital Projects The application, duly

verified by the representative of TRANSCO or Distribution Utility, as the case may
be, for the approval of any Major Capital Project shall be filed with the ERC
together with properly labeled three (3) hard and electronic copies of the following
data / information and a checklist of requirements:

1. Description of the Project;

2. Justifications for the Project;
(Include the adverse effects of the non-implementation of the proposed
Project(s) and impact or benefits of the proposed Project(s) on the
system);
3. Options / Alternatives considered in lieu of the proposed Project(s);
4. 5-year Historical and Forecast Planning Data;
5. Technical Analysis (Simulation and/or Computation);
6. Projected Financial & Economic Cost Analysis;
i. Impact / effect on rate base of the proposed Project(s);
ii. Net Present Value, Internal Rate of Return and Benefit/Cost
Ratio analysis (include analysis for the alternatives);

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 iii. Leverage, Liquidity, Efficiency and Profitability Ratios for the two
most recent 12-month periods (include Return on Equity and
Working Capital Ratio);
iv. Major assumptions used in estimating benefits and expenses to
be obtained and incurred during the lifetime of the project;
7. Front-End Engineering Design and Drawings (sufficient to conduct
bidding);
8. Project Cost Estimates (Equipment, Materials, Installation/Construction,
Testing & Commissioning, Feasibility & Engineering Design);
9. Project Financing Plan (i.e. amount and sources of financing);
10. Proposed Gantt Chart Schedule;
11. Board resolution approving the proposed Project(s);
12. Agency / Instrumentality Approvals (when applicable);
13. Plan for Right-Of-Way Acquisition (when applicable);
14. DOE certification that the proposed projects are consistent with the TDP
/ DDP;
15. Results of the competitive bidding and procurement process conducted
including the proposals of all suppliers and/or contracts (when available)

Section 2. Reportorial Requirements - Upon the ERCs approval of the

Major Capital Projects, TRANSCO and the Distribution Utilities, as the case may
be, shall submit regular progress reports and actual project costs. The frequency of
submission of the said reports shall be determined by the ERC taking into
consideration the project timetable.

Any change in the engineering design, specifications and bill of materials

during the implementation of the project has to be submitted to the ERC for
approval.

A cumulative increase of 10% or more of the proposed budget which cannot

be absorbed by the allocated contingency during the implementation of the project
has to be reported to the ERC.

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 Section 3. The Electric Utility shall submit to the ERC a written report,
together with justifications, if it decides to defer or cancel approved Major Capital
Projects.

Section 4. The reporting to ERC should be compatible and in accordance

with the Distribution Wheeling Rate Guidelines (DWRG) upon adopting an
alternative rate-setting methodology in the form of Performance-based Regulation
(PBR).

ARTICLE III

ADMISTRATIVE SANCTIONS

Violations of this Guidelines shall be subject to the penalty which the

Commission may impose in accordance with the Guidelines to Govern the
Imposition of Administrative Sanctions in the Form of Fines and Penalties pursuant
to Section 46 of Republic Act 9136.

ARTICLE IV

TRANSITORY PROVISIONS

Major Capital Projects that have been completed or have been commenced
shall be submitted for the ERCs approval, within three (3) months from the date of
the effectivity of this Guidelines.

ARTICLE V

FINAL PROVISION

Section 1. SEPARABILITY CLAUSE - If for any reason, any provision of this

Guidelines is declared unconstitutional or invalid by final judgment of a competent
court, the other parts or provisions hereof which were not affected thereby shall
continue to be in full force and effect.

SECTION 2. REPEALING CLAUSE - Any rule or regulation inconsistent with the

provisions of this Guidelines is hereby repealed and modified accordingly.

Section 3. EFFECTIVITY - This Guidelines shall take effect fifteen (15) days
upon its publication in a newspaper of nationwide circulation.

Pasig City, February 08, 2005.

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 RODOLFO B. ALBANO, JR.
Chairman

OLIVER B. BUTALID JESUS N. ALCORDO

Commissioner Commissioner

RAUF A. TAN ALEJANDRO Z. BARIN

Commissioner Commissioner

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